Saturday , June 10 2023

How to calculate Net Salary

Many people want to understand the salary structure of a private or a government company to actually calculate the Net salary or Net take home salary for a jobholder. The salary structure of a government company is uniform, guided by similar HR rules and mainly depend upon the Post/Position/Rank of the employee, whereas in private companies salary depend upon your role in the organisation and your performance in the organisation. Therefore there is a uniform formula for calculating Net salary in government companies but in private company it is difficult to make out the net take home salary from Post or Position of employee.

What is net salary

Net Salary or net pay is defined as Gross Salary minus total deduction every month. Salary structure of Private sector companies varies from that of Public sector companies and Government organisations in India.

    \[ NS =GS-TD \]

Where, NS= Net Salary every Month
GS=Gross Salary every Month
TD=Total Deduction every Month

Now, let us understand what is Gross salary w.r.t Private and Government Jobs

What is Gross Salary

Gross salary of Private jobs has mainly two components – Basic salary and Perks (or allowances)

Where, total Perks have no relation with the basic salary. The components of Perks or allowances vary from Posts and Positions, however some common components are.

-HRA (House Rent Allowances)
-Conveyance Allowance
-Leave Travel Allowance

Gross salary of Public Sector & Government jobs has mainly three components – Basic salary, Dearness Allowance (DA) and Perks (or Monthly allowances)

In Public sector and Government Jobs Basic salary is the important figure as all other component depend upon up on the Basic salary. Dearness Allowance (DA) is the percentage of Basic salary. Government of India declare increase or decrease in DA every quarter for Public sector employee and every six month for Central Government employees, depending upon the inflation figures. The Perks or monthly allowance is X percentage of basic salary where X vary from company to company.

The major components of Perks include

-Car maintenance

For Private Jobs

    \[ Gross Salary =Basic +Monthly Allowance \]

For PSU & Govt. Jobs

    \[ Gross Salary =Basic +DA + Monthly Allowance \]

Now, let us understand what are total deductions every month from your Gross salary.

Deduction from Gross Salary

Major deductions are almost same for private and government jobs. There are two main components of deductions.

  1. Income Tax
  2. Provident Fund

Provident fund amount is equal to 12% of basic salary (basic+DA), every month this amount is deducted and transferred to your Provident fund account. As per Employee Provident fund scheme, 1952 Govt. Of India also contribute 12% of basic in the same account.

Income Tax deduction is the rough amount deducted every month towards total income tax of the financial year. This amount depend upon the total Gross Income.

Other deductions vary from company to company and depending upon the facilities, memberships, rent etc.

A basic meaning of Net Salary is explained, detail structure of salary depends on company to company and their HR policies. However the above mentioned terms will  be there in every salary slip.


Authored by howtocalculate

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